Graded Assignment Due Friday 12.15.17 at 11:00 PM Attempts: Do No Harm: 13 2. Sc
ID: 1128987 • Letter: G
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Graded Assignment Due Friday 12.15.17 at 11:00 PM Attempts: Do No Harm: 13 2. Scenario I: Consumers are ready to commit Consider a game with two players: Sony and Microsoft. Each firm can adopt distinct strategles in en attempt to win the latest episode of the "console wars." The article describes the actual strategy adopted by each firm; n the problems that follow, you will consider the possible strategies each firm could have chosen before unvelling its Consider the following strategies. Sony can choose to offer a basic model (with low production costs) or a model with a Blu-ray DVD player (with higher production costs). For Microsoft, assume that it can choose to offer a low price model or a high price model (with more features, including an HD DVD player, which was, at the time, a rival to Blu-ray players). Assume that consumers in the market were eager to have the new generation of video game technology, so they didn't want to wait until the market established a standard DVD format. Consider the payoff matrix below. Note: The first number in each cell represents the payoff to the row player, Sony, and the second number represents the payoff to the column player, Microsoft Microsoft High Price 30, 30 20, 100 alu-ray PS3 120, 1030 Sony Basic PS3 40, 40 a strategy and given the strategy selected by the other player. Using the payoff matnx, which of the following outcomes is the Nash equilibrium in this game?Explanation / Answer
The game theory studies the strategic interaction among economic agents; there are two types of game. One is cooperative, another is non-cooperative. A non-cooperative game gives rise to prisoner’s dilemma. Here Prisoner’s dilemma is a game where pursuing a dominant strategy, that the strategy which is optimal regardless of opponents strategy, results in non-cooperation and make everyone worse off.
In this game:
Hence, if the firms do not collude they will choose dominant strategy and the Nash equilibrium would be
If the firm collude and cooperates they both can be better off and have higher profit by setting price to low and selling basic PS3. This will ensure $40 profit for both instead of high pricing-blu ray PS3 with profit of $30. Then non cooperation leads to choosing a dominant strategy equilibrium that makes every one worse off. Hence, the non-cooperation outcome is "Prisoners' dilemma" and the statement is
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